Leading Clever People

Leading Clever People

Franz Humer, the CEO and chairman of the Swiss pharmaceutical giant Roche, knows how difficult it is to find good ideas. “In my business of research, economies of scale don’t exist,” he says. “Globally today we spend $4 billion on R&D every year. In research there aren’t economies of scale, there are economies of ideas.”

For a growing number of companies, according to Humer, competitive advantage lies in the ability to create an economy driven not by cost efficiencies but by ideas and intellectual know-how. In practice this means that leaders have to create an environment in which what we call “clever people” can thrive. These people are the handful of employees whose ideas, knowledge, and skills give them the potential to produce disproportionate value from the resources their organizations make available to them. Think, for example, of the software programmer who creates a new piece of code or the pharmaceutical researcher who formulates a new drug. Their single innovations may bankroll an entire company for a decade.

Top executives today nearly all recognize the importance of having extremely smart and highly creative people on staff. But attracting them is only half the battle. As Martin Sorrell, the chief executive of WPP, one of the world’s largest communications services companies, told us recently, “One of the biggest challenges is that there are diseconomies of scale in creative industries. If you double the number of creative people, it doesn’t mean you will be twice as creative.” You must not only attract talent but also foster an environment in which your clever people are inspired to achieve their fullest potential in a way that produces wealth and value for all your stakeholders.

That’s tough. If clever people have one defining characteristic, it is that they do not want to be led. This clearly creates a problem for you as a leader. The challenge has only become greater with globalization. Clever people are more mobile than ever before; they are as likely to be based in Bangalore or Beijing as in Boston. That means they have more opportunities: They’re not waiting around for their pensions; they know their value, and they expect you to know it too.

If clever people have one defining characteristic, it is that they do not want to be led. This clearly creates a problem for you as a leader.

We have spent the past 20 years studying the issue of leadership—in particular, what followers want from their leaders. Our methods are sociological, and our data come from case studies rather than anonymous random surveys. Our predominant method consists of loosely structured interviews, and our work draws primarily from five contexts: science-based businesses, marketing services, professional services, the media, and financial services. For this article, we spoke with more than 100 leaders and their clever people at leading organizations such as PricewaterhouseCoopers, Electronic Arts, Cisco Systems, Credit Suisse, Novartis, KPMG, the British Broadcasting Corporation (BBC), WPP, and Roche.

The more we talked to these people, the clearer it became that the psychological relationship leaders have with their clever people is very different from the one they have with traditional followers. Clever people want a high degree of organizational protection and recognition that their ideas are important. They also demand the freedom to explore and fail. They expect their leaders to be intellectually on their plane—but they do not want a leader’s talent and skills to outshine their own. That’s not to say that all clever people are alike, or that they follow a single path. They do, however, share a number of defining characteristics. Let’s take a look at some of those now.

Understanding Clever People

Contrary to what we have been led to believe in recent years, CEOs are not utterly at the mercy of their highly creative and extremely smart people. Of course, some very talented individuals—artists, musicians, and other free agents—can produce remarkable results on their own. In most cases, however, clever people need the organization as much as it needs them. They cannot function effectively without the resources it provides. The classical musician needs an orchestra; the research scientist needs funding and the facilities of a first-class laboratory. They need more than just resources, however; as the head of development for a global accounting firm put it, your clever people “can be sources of great ideas, but unless they have systems and discipline they may deliver very little.”

That’s the good news. The bad news is that all the resources and systems in the world are useless unless you have clever people to make the most of them. Worse, they know very well that you must employ them to get their knowledge and skills. If an organization could capture the knowledge embedded in clever people’s minds and networks, all it would need is a better knowledge-management system. The failure of such systems to capture tacit knowledge is one of the great disappointments of knowledge-management initiatives to date.

The attitudes that clever people display toward their organizations reflect their sense of self-worth. We’ve found most of them to be scornful of the language of hierarchy. Although they are acutely aware of the salaries and bonuses attached to their work, they often treat promotions with indifference or even contempt. So don’t expect to lure or retain them with fancy job titles and new responsibilities. They will want to stay close to the “real work,” often to the detriment of relationships with the people they are supposed to be managing. This doesn’t mean they don’t care about status—they do, often passionately. The same researcher who affects not to know his job title may insist on being called “doctor” or “professor.” The point is that clever people feel they are part of an external professional community that renders the organizational chart meaningless. Not only do they gain career benefits from networking, but they construct their sense of self from the feedback generated by these extra-organizational connections.

This indifference to hierarchy and bureaucracy does not make clever people politically naive or disconnected. The chairman of a major news organization told us about a globally famous journalist—an exemplar of the very clever and skeptical people driving the news business—who in the newsroom appears deeply suspicious of everything the “suits” are doing. But in reality he is astute about how the company is being led and what strategic direction it is taking. While publicly expressing disdain for the business side, he privately asks penetrating questions about the organization’s growth prospects and relationships with important customers. He is also an outspoken champion of the organization in its dealings with politicians, media colleagues, and customers. You wouldn’t invite him to a strategy meeting with a 60-slide PowerPoint presentation, but you would be wise to keep him informed of key developments in the business.

Like the famous journalist, most clever people are quick to recognize insincerity and respond badly to it. David Gardner, the COO of worldwide studios for Electronic Arts (EA), knows this because he oversees a lot of clever people. EA has 7,200 employees worldwide developing interactive entertainment software derived from FIFA Soccer, The Sims, The Lord of the Rings, and Harry Potter, among others. “If I look back at our failures,” Gardner told us, “they have been when there were too many rah-rahs and not enough content in our dealings with our people. People are not fooled. So when there are issues or things that need to be worked out, straightforward dialogue is important, out of respect for their intellectual capabilities.”

Managing Organizational “Rain”

Given their mind-set, clever people see an organization’s administrative machinery as a distraction from their key value-adding activities. So they need to be protected from what we call organizational “rain”—the rules and politics associated with any big-budget activity. When leaders get this right, they can establish exactly the productive relationship with clever people that they want. In an academic environment, this is the dean freeing her star professor from the burden of departmental administration; at a newspaper, it is the editor allowing the investigative reporter to skip editorial meetings; in a fast-moving multinational consumer goods company, it is the leader filtering requests for information from the head office so the consumer profiler is free to experiment with a new marketing plan.

Organizational rain is a big issue in the pharmaceutical business. Drug development is hugely expensive—industry-wide, the average cost of bringing a drug to market is about $800 million—and not every drug can go the distance. As a result, the politics surrounding a decision can be ferocious. Unless the CEO provides cover, promising projects may be permanently derailed, and the people involved may lose confidence in the organization’s ability to support them.

The protective role is one that Arthur D. Levinson, Genentech’s CEO and a talented scientist in his own right, knows how to play. When the drug Avastin failed in Phase III clinical trials in 2002, Genentech’s share price dropped by 10% overnight. Faced with that kind of pressure, some leaders would have pulled the plug on Avastin. Not Levinson: He believes in letting his clever people decide. Once or twice a year, research scientists have to defend their work to Genentech’s Research Review Committee, a group of 13 PhDs who decide how to allocate the research budget and whether to terminate projects. This gives rise to a rigorous debate among the clever people over the science and the direction of research. It also insulates Levinson from accusations of favoritism or short-termism. And if the RRC should kill a project, the researchers are not only not fired, they are asked what they want to work on next.

Roche owns 56% of Genentech, and Franz Humer stands foursquare behind Levinson. Leading clever people, Humer told us, is especially difficult in hard times. “You can look at Genentech now and say what a great company,” he said, “but for ten years Genentech had no new products and spent between $500 million and $800 million on research every year. The pressure on me to close it down or change the culture was enormous.” Avastin was eventually approved in February 2004; in 2005 it had sales of $1.13 billion.

Having a leader who’s prepared to protect his clever people from organizational rain is necessary but not sufficient. It’s also important to minimize the rain by creating an atmosphere in which rules and norms are simple and universally accepted. These are often called “representative rules,” from the classic Patterns of Industrial Bureaucracy, by the sociologist Alvin Gouldner, who distinguished among environments where rules are ignored by all (mock bureaucracy), environments where rules are imposed by one group on another (punishment-centered bureaucracy), and environments where rules are accepted by all (representative bureaucracy). Representative rules, including risk rules in banks, sabbatical rules in academic institutions, and integrity rules in professional services firms, are precisely the ones that clever people respond to best.

Savvy leaders take steps to streamline rules and to promote a culture that values simplicity. A well-known example is Herb Kelleher, the CEO of Southwest Airlines, who threw the company’s rule book out the window. Another is Greg Dyke, who when he was the director general of the BBC discovered a mass of bureaucratic rules, often contradictory, which produced an infuriating organizational immobilisme. Nothing could be better calculated to discourage the clever people on whom the reputation and future success of the BBC depended. Dyke launched an irreverent “cut the crap” program, liberating creative energy while exposing those who had been blaming the rules for their own inadequacies. He creatively engaged employees in the campaign—for example, suggesting that they pull out a yellow card (used to caution players in soccer games) whenever they encountered a dysfunctional rule.

Letting a Million Flowers Bloom

Companies whose success depends on clever people don’t place all their bets on a single horse. For a large company like Roche, that simple notion drives big decisions about corporate control and M&A. That’s why Humer decided to sell off a large stake in Genentech. “I insisted on selling 40% on the stock market,” he told us. “Why? Because I wanted to preserve the company’s different culture. I believe in diversity: diversity of culture, diversity of origin, diversity of behavior, and diversity of view.”

For similar reasons, Roche limits its ownership of the Japanese pharmaceutical company Chugai to 51%. By keeping the clever people in all three companies at arm’s length, Humer can be confident that they will advance different goals: “My people in the Roche research organization decide on what they think is right and wrong. I hear debates where the Genentech researchers say, ‘This program you’re running will never lead to a product. You are on the wrong target. This is the wrong chemical structure—it will prove to be toxic.’ And my guys say, ‘No, we don’t think so.’ And the two views never meet. So I say to Genentech, ‘You do what you want, and we will do what we want at Roche, and in five years’ time we will know. Sometimes you will be right and sometimes we will be right.’” Maintaining that diversity is Humer’s most challenging task; there is always pressure within a large organization to unify and to direct from above.

Companies that value diversity are not afraid of failure. Like venture capitalists, they know that for every successful new pharmaceutical product, dozens have failed; for every hit record, hundreds are duds. The assumption, obviously, is that the successes will more than recover the costs of the failures. Take the case of the drinks giant Diageo. Detailed analysis of customer data indicated an opening in the market for an alcoholic beverage with particular appeal to younger consumers. Diageo experimented with many potential products—beginning with predictable combinations like rum and coke, rum and blackcurrant juice, gin and tonic, vodka and fruit juice. None of them seemed to work. After almost a dozen tries, Diageo’s clever people tried something riskier: citrus-flavored vodka. Smirnoff Ice was born—a product that has contributed to a fundamental change in its market sector.

It’s easy to accept the necessity of failure in theory, but each failure represents a setback for the clever people who gambled on it. Smart leaders will help their clever people to live with their failures. Some years ago, when three of Glaxo’s high-tech antibiotics all failed in the final stages of clinical trial, Richard Sykes—who went on to become chairman of Glaxo Wellcome and later of GlaxoSmithKline—sent letters of congratulation to the team leaders, thanking them for their hard work but also for killing the drugs, and encouraging them to move on to the next challenge. EA’s David Gardner, too, recognizes that his business is “hit driven,” but he realizes that not even his most gifted game developers will always produce winners. He sees his job as supporting his successful people—providing them with space and helping them move on from failed projects to new and better work.

Smart leaders also recognize that the best ideas don’t always come from company projects. They enable their clever people to pursue private efforts because they know there will be payoffs for the company, some direct (new business opportunities) and some indirect (ideas that can be applied in the workplace).This tradition originated in organizations like 3M and Lockheed, which allowed employees to pursue pet projects on company time. Google is the most recent example: Reflecting the entrepreneurial spirit of its founders, Sergey Brin and Larry Page, employees may spend one day a week on their own start-up ideas, called Googlettes. This is known as the “20% time.” (Genentech has a similar policy.) The result is innovation at a speed that puts large bureaucratic organizations to shame. The Google-affiliated social-networking Web site Orkut is just one project that began as a Googlette.

Establishing Credibility

Although it’s important to make your clever people feel independent and special, it’s equally important to make sure they recognize their interdependence: You and other people in the organization can do things that they can’t. Laura Tyson, who served in the Clinton administration and has been the dean of London Business School since 2002, says, “You must help clever people realize that their cleverness doesn’t mean they can do other things. They may overestimate their cleverness in other areas, so you must show that you are competent to help them.” To do this you must clearly demonstrate that you are an expert in your own right.

Depending on what industry you are in, your expertise will be either supplementary (in the same field) or complementary (in a different field) to your clever people’s expertise. At a law firm, the emphasis is on certification as a prerequisite for practice; at an advertising agency, it’s originality of ideas. It would be hard to lead a law firm without credentials. You can lead an advertising agency with complementary skills—handling commercial relationships with clients, for instance, while your clever people write great copy.

A man we’ll call Tom Nelson, who was the marketing director of a major British brewer, is a good example of a leader with complementary skills. Nelson was no expert on traditional brewing techniques or real ales. But he was known throughout the organization as “Numbers Nelson” for his grasp of the firm’s sales and marketing performance, and was widely respected. Nelson had an almost uncanny ability to quote, say, how many barrels of the company’s beer had been sold the previous day in a given part of the country. His clear mastery of the business side gave him both authority and credibility, so the brewers took his opinions about product development seriously. For example, Nelson’s reading of market tastes led to the company’s development of low-alcohol beers.

If you try to push your clever people, you will end up driving them away. As many leaders of highly creative people have learned, you need to be a benevolent guardian rather than a traditional boss.

Leaders with supplementary expertise are perhaps more commonplace: Microsoft’s Bill Gates emphasizes his abilities as a programmer. Michael Critelli, the CEO of Pitney Bowes, holds a number of patents in his own name. Richard Sykes insisted on being called Dr. Sykes. The title gave him respect within the professional community to which his clever people belonged—in a way that being the chairman of a multinational pharmaceutical company did not.

But credentials—especially if they are supplementary—are not enough to win acceptance from clever people. Leaders must exercise great care in displaying them so as not to demotivate their clever employees. A former national soccer coach for England, Glenn Hoddle, asked his star player, David Beckham, to practice a particular maneuver. When Beckham couldn’t do it, Hoddle—once a brilliant international player himself—said, “Here, I’ll show you how.” He performed the maneuver flawlessly, but in the process he lost the support of his team: The other players saw his move as a public humiliation of Beckham, and they wanted no part of that. The same dynamic has played out many times in business; the experience of William Shockley is perhaps the most dramatic, and tragic, example (see the sidebar “The Traitorous Eight”). How do you avoid this kind of situation? One highly effective way is to identify and relate to an informed insider among your clever people—someone willing to serve as a sort of anthropologist, interpreting the culture and sympathizing with those who seek to understand it. This is especially important for newly recruited leaders. Parachuting in at the top and accurately reading an organization is hard work. One leader we spoke to admitted that he initially found the winks, nudges, and silences of his new employees completely baffling. It took an interpreter—someone who had worked among the clever people for years—to explain the subtle nuances.• • •

Martin Sorrell likes to claim that he uses reverse psychology to lead his “creatives” at WPP: “If you want them to turn right, tell them to turn left.” His comment reveals an important truth about managing clever people. If you try to push them, you will end up driving them away. As many leaders of extremely smart and highly creative people have learned, you need to be a benevolent guardian rather than a traditional boss. You need to create a safe environment for your clever employees; encourage them to experiment and play and even fail; and quietly demonstrate your expertise and authority all the while. You may sometimes begrudge the time you have to devote to managing them, but if you learn how to protect them while giving them the space they need to be productive, the reward of watching your clever people flourish and your organization accomplish its mission will make the effort worthwhile.